Stone Company’s Integrated Strategy: Doubling Profits and Expanding through Software Business

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In addition to the machine: Stone’s strategy to double profits in four years is expanding to include an integration with Linx, aiming to attract new customers through its software business. The company recently surpassed third-quarter expectations, surprising the market and prompting management to urge investors to maintain their optimism.

The main objective now is to achieve an annual profit of R$1.9 billion by 2024 and generate a total of up to R$4.3 billion by 2027, effectively tripling the company’s bottom line. This ambitious goal was announced at the Stone Company’s Investor Day event in New York.

To achieve this, the company has developed a profitable cash flow business strategy. CEO Pedro Zinner explains that historically, the company has prioritized rapid growth. However, there are now numerous opportunities to focus on efficiency and improve profitability.

At the Investor Day event, the emphasis was placed on micro, small, and medium-sized enterprises (MPMEs). This group has always been a priority for Stone, but its importance has now been further bolstered. With a take rate of 2.7 percent, Stone aims to outperform the industry average, handling payments worth over R$600 billion by 2027.

In an interview with EXAME Invest, Zinner emphasized that the goal is not to alter the company’s strategy, but rather to make implementation clearer and concentrate on the most lucrative opportunities. While the main focus remains on acquiring new customers, Stone also plans to integrate its financial services and software businesses.

The company plans to capitalize on the synergy between these two sectors, aiming to provide financial products to the customers of its software company. The four main sectors targeted for growth are grocery stores, restaurants, pharmacies, and petrol stations. By solidifying its position as a “one-stop-shop” solution for MPMEs in these sectors, Stone aims to extract the maximum potential value from these industries.

“We are communicating to the market which verticals have the greatest potential for value extraction by combining financial services and software,” said Zinner.

The integration strategy between Stone and Linx’s software business has been a significant development for the company. In October, Stone announced its decision to restructure and incorporate Linx into its core business. This move was a long-awaited demand from the market, which had been seeking clearer signs of business combination since Stone’s acquisition of Linx in 2020.

Financial services were also highlighted as the principal revenue driver for the company. Stone’s financial services platform initially focused on payments but has now expanded to include banking and credit solutions. The platform is currently undergoing an expansion phase, and Stone’s chief strategist, Lia Matos, believes that the company’s greatest potential for monetizing its customer base lies in its software offerings.

Earlier this year, Stone recognized an opportunity to resume lending, thus reinforcing its banking vertical. The company faced significant challenges in 2021 due to the wave of insolvencies. However, after careful assessment, Stone sees room to cautiously resume operations.

“We have resumed lending this year and currently have R$113 million in available credit,” said Mateus Scherer, Stone’s CFO. “Our goal is to reach R$800 million next year and exceed R$5.5 billion in card transactions by the end of 2027.”

It is anticipated that in addition to credit, other financial services will also experience growth. Stone currently holds deposits of R$4.5 billion and aims to increase that to R$7 billion next year, and eventually R$14 billion by 2027.

The integration of Stone and Linx’s software business, combined with the company’s commitment to expanding its financial services, paints an optimistic future for Stone. By focusing on efficiency and targeting lucrative opportunities, the company aims to not only double its profits but also establish itself as a leading provider of financial solutions for MPMEs across various industries.

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